One of the rags-to-riches tales of the market this year, Carvana (NYSE:CVNA) continues to astound investors, popping up 20% as of this writing on Friday despite little-to-no company-specific news. However, management did disclose on Thursday that it will release its second-quarter earnings report on Aug. 3. Therefore, CVNA stock may be rising as retail investors bet on the continuation of encouraging developments.
To recap, earlier this year, Carvana was essentially on a bankruptcy watch. Indeed, management warned investors last year about its struggling business. At the end of September 2022, Carvana also incurred debt of almost $9.25 billion with just $666 million in cash on hand. Despite the obvious risk factor, though, investors continued to bid up CVNA stock.
Fundamentally, some justification for the bullish narrative arrived in the form of Carvana’s Q1 2023 earnings report. Back then, the company managed to narrow its quarterly loss to $1.51 per share (compared to $2.89 in the year-ago quarter). While its revenue did drop 25% year-over-year (YOY) during the period, the $2.61 billion haul still hit the “top of a previous guidance range.”
At the time, management stated that it hoped to achieve positive adjusted EBTDA in Q2. With this report about to be disclosed shortly, speculators may be anticipating more good news.
CVNA Stock Compels Gamblers But Remains Risky
On the surface, CVNA stock appears to have possibly turned a corner. Since the beginning of 2023 to the time of this writing, shares have popped more than 500% — a simply staggering figure. And even if the rate appears diminutive, what’s more impressive is CVNA’s trailing-year performance, a gain of around 10%. Keep in mind that, a few months ago, this stat was deep in the red.
Market gamblers also have reason to remain bullish, despite obvious concerns about holding the proverbial bag. According to data from Fintel, the short interest for CVNA stock as of the May 31 settlement date stood at 64.05% of its float. Furthermore, Fintel’s proprietary Short Squeeze Score rates CVNA stock as an 88.18 out of 100. Higher numbers indicate a greater risk of a short squeeze materializing relative to peers.
Although some factors appear to point in a positive direction for Carvana, there are other reasons for concern. Early last month, Reuters reported that shares stumbled as analysts — while encouraged at management’s outlook — did not expect more gains. Primarily, Carvana has struggled to sell cars that have been acquired at elevated prices.
To be fair, a cool June jobs report bodes well regarding the disinflation narrative that has popped up recently. Nevertheless, economists warn that inflation remains high, posing concerns about future monetary policy. Subsequently, a hawkish policy may spark an economic slowdown, which wouldn’t favor shares of Carvana stock.
Why It Matters
According to TipRanks, Wall Street analysts over the past three months peg CVNA stock as a consensus “hold.” This assessment breaks down as two “buy” ratings, 13 “hold” ratings and one “sell.” Overall, the average price target for Carvana lands at $14.36, implying over 50% downside risk.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
